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Volati AB
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Hello, and good morning, and welcome to today's webcast presentation with Volati. With us presenting today, we have the CEO, Andreas Stenback; and CFO, Martin Aronsson. [Operator Instructions] And with that said, I'll give the floor to you guys. Go ahead.
Thank you. A warm welcome and happy that you are listening in to our Q2 report, and we'll dig directly into it. Volati is a fast-growing and acquisitive group of 6 well-managed platforms with strong earnings growth and cash flows. Two of them are our naturally integrated business areas, Salix Group and Ettiketto Group, while 4 of the remaining platforms are within the business area industry. With these continuous operations, these business areas, we have shown an average EBITDA growth of 37% for the last 5 years, roughly half of which has been organic. And all of these business areas are contributing strongly this growth. Before digging into our most recent quarter, I would like to take a step back and look at the even longer trend. Volati's overriding goal is to generate a long-term value growth. That means that we're not best evaluated on the most recent quarter or the individual quarter, but rather our ability to create value over time. And I think this slide is a good example of that, that summarizes that in a very good way. We have grown our reported EBITA on average 23% over the last 10 years, and this has been done with our own cash flow. So let's -- with that, let's look into our most recent quarter, Q2. We are showing a very strong and solid Q2, and I'm impressed by the work that all my colleagues are doing out in the business areas. We meet tough or we met tough comparables numbers from last year. And our recently slightly slower M&A pace means that acquisitions have contributed less in this quarter. With that in perspective, I'm very happy to show that we are growing EBITDA with 10%, and we're improving the margins in the group. All business areas are developing as expected, and I'm very happy with our development starting with Industry which has been the growth driver in the quarter, growing top line with 15% and improving margins. Ettiketto is showing a stable development as expected -- and really showing that the more of making add-on acquisitions and realize synergies from these are successful. For us, that means that we can see a continuous improvement in margins. And in this quarter, we actually improved the margins by 2 percentage points in Ettiketto. Salix delivers yet another solid quarter in a challenging market. In Q2, we still meet tough comparables in that business area. But despite the lower sales, the margin strengthening measures that we initiate that now quite some time ago are really showing effect, meaning that we came in on margins more or less in line with the same quarter last year in Salix, which I think is very well done by the team. Operational cash flow developing strong as we expected. We started focusing on lowering our working capital early in the cycle. We have worked with that in -- with more than a year now. And thus, we have seen a positive effect now for a couple of quarters, and that positive effect is continuing also in Q2. We have a new credit facility in place. We added SEB alongside Nordea early in the quarter. And we have also in a swift manner, sustainability linked into facility. And we have done 1 acquisition Sweja, which I will give you more information about this later on. So looking into the more detailed numbers in the quarter. Sales growth of 3% as said earlier, Industry is the driver. They grew 15% of sales at the capital, delivering more or less in line with what we expected as they don't have any acquisitions coming in. So they are more or less in line with last year. And Salix showing a negative growth. We see 10% growth in EBITDA, meaning that we are improving margins. And as you can also see the strong operating cash flow are showing in our net debt-to-EBITDA number, which is in the lower range of where we want to be. So 2.1. Looking at the rolling 12 months figures, we are now showing in sales in excess of SEK 8 billion. The sales has grown 11% on a rolling 12-month basis and EBITDA have grown even higher at 13%. Thus, we are also showing an improved margins on the full year basis. As you can see, the cash flow is significantly better than 12 months ago, showing that those efforts that we initiated now for quite some quarters ago are really showing effect. With that, I'll leave the word to Martin.
Thank you, Andreas. So then let's look into our 3 financial targets. And let's start with the EBITDA growth per ordinary share during the last 12 months. So during the period, we performed at 13% versus our target, which is 15%. But what is also stated in our financial goal regarding this is that 15% is our business cycles. And given the current challenging macroeconomical environment, this summarizes a good quarter for Volati. Looking at the second financial target return on adjusted equity, we are performing at 30%, which is significantly exceeding our financial target of 20% and then we have our third financial target, which is the capital structure, where the target is to have a net debt to adjusted EBITDA ratio between 2 to 3x, and never exceeding 3.5x. And we are now at, as Andreas mentioned, at the 2.1x, which is in the lower range of our financial targets, and that also gives us a significant ammunition to grow through acquisitions going forward. So let's look at how our 3 business areas are performing. Let's start with Salix Group. And given the current difficult market situation that Salix is facing in the Construction segment, Salix Group delivers a quarter that we are very proud of. And despite the sales decline in the quarter, the margin remained on the same level as last year with 10%. Looking at the demand, the demand is still relatively good in the Professional segment. However, the demand in the Consumer segment continues to be weak. And the currency effects are working against us. However, lower freight cost and cost of some raw materials mitigate some of that negative effects. And given the market situation that Salix is facing, they have successfully focused on reducing cost in the organization, which is increasingly positively affecting the result. And as Andreas mentioned, they have made 1 acquisition in the quarter of Sweja, and we believe that they are well positioned to grow further through acquisitions going forward. So let's move to Ettikatto Group, who delivers another strong quarter. They had stable revenues in the quarter and 12% sales growth during the past year. The demand is good and the order intake is solid, especially in the later part of the quarter. And Ettikatto is expanding the production capacity to be able to meet this demand. And we're also very happy to see that the trend of increasing EBITDA is continuing in the quarter, and we are now up to 2 percentage points in the quarter. So the strategy of Ettikatto has of acquiring companies with lower margins and usually lower margins than Ettikatto has today. And then focusing on expecting synergies and operational improvements is really paying off. And that means also that the last 12 months margins now are 1 percentage points higher than 1 year back. And Ettikatto is working its way towards the historical margins of up to 20%.
Ettikatto is looking for product acquisitions and they are looking both Nordics and the rest of Europe, and we see a significant potential to grow further in this business area. Then lastly, we have industry, which is a diversified business area with 4 businesses in different sectors. But what they have in common is that they are in sectors which are, in general, are less affected by the development of the general economy. Industry delivered a strong quarter with 15% sales growth and 20% EBITDA growth, mainly through organic growth. And this also means that the last 12 months margins are now up with 0.2 percentage points in the quarter. In general, we see a good demand in the business area, although Salix is experiencing some cautiousness in the Retail & Construction segment. However, the demand for Salix products in the Infrastructure segment is very good on the other hand. Tornum Group continues to deliver another solid quarter, and they have successfully replaced the volumes lost due to Russia's war in Ukraine. Corroventa is performing well despite the lack of some storms and Communications has provided another good quarter. However, when looking at the demand in Communications, it has been very high during past 12 months, and we are now seeing a bit of softening in the demand in that platform. However, that is from very high levels. We also believe that the Industry is well positioned to grow through acquisitions also going forward. So with that, I leave the word to Andreas.
Thank you, Martin. So we're going to look into acquisitions. And this slide shows the 20 acquisitions that we've done since 2020. As you can see, we've been active in all platforms, except for Corroventa. The acquisition pace for the last 12 months have, however, come down somewhat. We have finalized 3 acquisitions. We're up 1 in the last quarter and that is Sweja. Sweja is a very typical, I would say, Volati and Salix acquisition. That's a good example of what we want to do. It's also a good example of that -- sometimes, in particular, in this market, discussions take a bit longer. We have followed this company for quite some time. But as is often the case, as we are an ideal buyer for this type of companies, we reached to a conclusion in May this year. And Sweja then. Yes, Sweja was a family business, a very nice stable business with its strength in the tape and stretch film segment. And by doing that, they are complementing Salix's existing business, T-Emballage already active in that segment. So what this acquisition provides us with or gives us is that it's strengthening our product offering and position on the market within Salix. And at the same time, we have cost synergies, which we typically have, which also add additional value creation. Looking at the rolling 12 months acquisition pace then, as can be seen and as mentioned earlier, we have had a slightly lower pace in the last 5 months. Anyway, over time, we expect to do 6 to 8 acquisitions on a rolling 12-month basis, adding SEK 700 million to SEK 1.2 billion of annual sales. I still see a good activity on market, we still see a good activity on the market, which I also mentioned earlier. And I'm most happy with the pipeline that we have in our platform. So the activity level is on the right -- is where it should be. But discipline for us is extremely important. I do not want us to get too stressed up about the short-term acquisition pace. What is more important is that we do the right acquisitions with the right returns. And maintaining this discipline has been one of the core elements of Volati [indiscernible] in the past. So what I'm more focusing on is that we're doing the right things. We have the right activity levels, and we also have the financial position to increase acquisition pace when the right opportunities occur. And having the financial position in place, can be seen on this slide. We already mentioned the operational cash flow a couple of times. We also mentioned that we have a new credit agreement in place, adding SEB alongside Nordea. And that leaves us with what I would consider our strong financial position. The net debt-to-EBITDA level is where it should be, in the lower range of our financial goal. And we also have the liquidity base SEK 1.1 billion to act on acquisitions when they occur. So with that, I'm just going to spend a minute or so summarizing. I'm very happy with -- we are very happy and proud of the solid quarter of -- second quarter of 2023 and in particular, the EBITA growth and the margin improvement that we've seen and that we still see that the cash flow profile is where it should. As you know, we're focusing on long-term value creation, 37% EBITA growth on average over the last 5 years. We have the return on equity where it should be at 30%. It's actually significantly higher than our financial goal. And we have the platforms in place, 6 platforms that has a long-term sustainable business models and good growth opportunities, not the least within M&A and we have the financial strength then to support that growth. So with that, I'm leaving for -- we're opening up for any questions.
Thank you very much for the presentation. And like I said, I will jump into the Q&A section. [Operator Instructions] And we'll begin with the first one calling in. Please go ahead. You have the word.
Its Vic Hansen from Nordea here. Can you hear me?
Yes, we hear you right.
Excellent. So a couple of questions from my side. And the first one being here. So the main growth driver in the quarter seems to be Industry and maybe Communications, in particular. I'm wondering if you could tell us more about what drove the strong improvement here? And also, if you could tell us about the synergies that you mentioned for the business area?
Yes. So you're right, Industry has been the main growth driver in terms of top line and Communication has developed well, but you also see good development, for example, in Tornum. So I would want to point out that it's not only Communication that contributed to the growth. In terms of margin and synergy, basically just looking at -- I would just look at the acquisitions that we've done within that business area the last 12 to 24 months. And what typically happens as we've had with a pretty high acquisition pace in that industry -- in that business area, that means that we are continuously over the last 2 years, realizing these synergies. And it's, for example, Apisa and JWI in Tornum, which are -- and also Terastorni. So actually 3 add-on acquisitions in Tornum, where we see synergy realization. So that's 1 example.
Okay. Great. Next question. So your working capital increased a bit here in the quarter [Audio Gap] and due to receivables. I'm just wondering, are there any timing effects here? Or how should we see it?
Yes, it's on the receivables. It's actually due to some of the -- some of the platform for being very successful with sales in the later part of the -- in the later part of the quarter. So it's not the change in the way that we get paid from customers. So I'd say that those receivables are increasing due to increased sales in those parts, especially in the later part of the quarter.
Yes. Got it. And then jumping over to Salix. I'm wondering if you could tell us more about the cost initiatives you've taken here. And if you would say that there is more to come.
Yes. So with regards to that. So as mentioned, think we became cost cautious already more than a year ago when we saw the growth pace slowing down. So firstly, there is just a general sense of cost cautiousness. And secondly, and that, of course, was included in the budget process for 2023 and so forth. And then secondly, we have a couple of central initiatives within Salix. And that is when making Salix an integrated group. That means that we are centralizing some initiatives, for example, within logistics, it's going to be sourcing and so forth. And that -- those kind of initiatives we also see effect from. And I expect these kind of initiatives takes time. So we will see effects in that over time. So we still expect and has previously communicated that those effects to be seen over the course of this year.
And then continuing on Salix. I'm wondering if you could give us an updated end market exposure.
It's -- I think it's more or less what Martin said during the presentation. So consumer, we -- firstly, we still come from extremely high levels of demand, both in 2021, but also in parts of 2022. So -- but we still see a softening demand in -- or softer demand in the Consumer segment where from Q3 and onwards, I would say that we're meeting better comparables because we see that slowdown coming in during last summer. But in the Industrial and Professional segment, it's still holding up relatively well. And I would conclude that part of that is because we are mainly focusing towards the route renovation segment rather than the new build segment.
And Victor, to your question also was regarding the percentage points. Then we have communicated before that roughly 20% is towards Consumers and the rest is towards Professional mainly then and also Industry.
Okay. Thank you for those answers. Two more question here, if I may. So for Ettikatto here, sales and earnings have been rather unchanged for the last 3 quarters. And I'm wondering if you could tell us more about what development you are doing here under the surface within the platform? And maybe, yes, what you're doing in terms of synergies, so we can get a better feeling for this and what's to come?
So as -- sales has been more or less flat. And the easy answer to that is that the last acquisition we did was more than 12 months ago. So we don't turn any acquisition-driven growth coming in. And that is, I would say, what typically drives top line in a category. Ettikatto is operating in a fairly stable market and we're adding volumes mainly through acquisitions. And then on the margin side, as you have seen, we are improving margins. And that are the cost synergies that we are continuously realizing. And they have different characteristics. We have typically short-term cost synergies, meaning that could be headcount or it could be closing down a production plant or whatever that might be. But we also have long-term or longer-term margin improvement potential. And that is more implementing at the [indiscernible] way of working, which could typically take more than 12 months. And as you can see, we've seen effect from both those type of synergies, I would say, in the last quarter.
Yes. Okay. Great. And then my final question here, it's on the M&A market. And I'm wondering if you have any general comments on the M&A market, maybe are sellers accepting a lower valuation? Or is it still a bit hard to close deals and the reason why I'm asking, as you talked a little bit about it at the end of your presentation, but you only announced 2 acquisitions this year. And I know the pace can be a bit lumpy, but still it's quite a bit below your pace last year. So any comments here would be very appreciated.
No, it's a very good question, Victor. And I think the market is better. I think I said that already last quarter that we felt that the market -- M&A market opened up compared to last fall, where we felt it was tight. And so we -- the general market environment, I would say, is better. Also, the activity level that I see in our platforms are better than it was, let's say, 9 months ago. So for us, it's just a matter of not completing these transactions and deals. And what I tend to come back to internally and externally when I talk about this is the discipline. So we -- we want to do the right transactions. We want to do them to the right return. And I'm comfortable that we will be able to do that. But it also means that we will have quarters or even years now where we have a slightly lower pace than average. But hopefully, we will also compensate by having slightly higher pace over other periods. So we will have a natural fluctuation in regard -- with regards to our M&A pace because of that discipline and that -- and actions occur when we do. For us, it's more focusing on building up the processes, being active, making sure that we have a strong enough pipeline.
Okay. We're going to continue with some questions here that has come in from that form. What is Volati's outlook for the remainder of the year based on its Q2 performance? Are there any specific goals, initiatives or risk that investors should be aware of?
It's a good question. We typically don't give forward-looking statements. So -- but -- so basically, I think we're at a good pace, which we've said. We're continuously focusing on cost margins, and we're going to continue doing that. And hopefully, we'll get the acquisition speed up a bit and show a couple of transactions, but those happens when they happen.
Okay. Thank you. We'll take the next question here. Can you provide an update on Volati's debt structure? And how -- any significant changes in the company's capitalization during Q2? And how does this impact Volati's overall financial stability?
Yes. So as Andreas mentioned, we have renegotiated the credit agreement with SEB and Nordea. So that is the main part of our capital structure. And then we also have the preference share as part of our capital structure. And there hasn't really been -- during the quarter, we, of course, have had the dividend, which has increased net debt during the period. But overall, there hasn't been any large changes in the capital structure during the quarter that the investors should know about. So -- and looking forward, we -- the first half year of -- for Volati is typically the half year, which we have a little bit weaker cash generation and then during the second half year, we have more cash coming in. So we believe that the -- the net debt will go -- net debt will also go down during the next quarters if we perform as we have done historically.
Okay. Thank you. We've got another question from a person calling in. So please go ahead, you have the word.
This is Niklas Savas from Redeye. I just have 2 questions. The first question is regarding the Communications segment. And you say that the demand is -- sales is flattening out from high levels. Can you give us the main drivers of this? Is this related to the 5G, the slow build-out of 5G? Or -- that's the main drivers there?
Yes. So that's a short and easy answer. That one of the end segments for our products in that platform is the 5G rollout. And there has been a slowdown also over the last quarter or so within the 5G rollout, which eventually will affect us as well. But I think it's also important to mention that we see that it's a temporary slowdown and that the volumes will come back. Actually, if you want to read about it, I would suggest looking into Ericsson's report last Friday where they talked quite a lot about it.
And I mean, in general, I've been studying a few of your peers as well. And it seems like the demand within the Industrial segment as a whole has been really, really strong the last year. So now it seems that everybody are meeting weak -- I mean, meeting tough comparables and therefore, quite low organic growth. But still, you had a really strong quarter within Industrial. But when you start the -- I mean, future acquisitions and so on, are there any subsegments that you see -- I mean, that you are scared of, so to speak, but you think that the demand will be weak for the next years or so? Do you think in general that this is a, I mean, temporary slowdown? Of course, it's hard to guess what will happen. But I want to hear about your general view on the demand across segments.
No, it's a good question. And firstly, I think we have deliberately when looking at the platforms that we have right now, we have deliberately tried to acquire companies that are within segments that are less cyclable. We own Tornum. We own Corroventa. Communication also have slightly other drivers and so forth. So that's been -- it's not coincidence that we have that kind of portfolio. And having that said, when you put that in an M&A context, being an industrial buyer, which we are with add-ons, that also gives us the benefit of having an in-depth long-term view of that industry, meaning that we don't actually have to take that much the short-term development into account. Of course, we don't want to overpay. We want the return. But we can also have the coverage of acquiring within an industry, which is currently not performing as well, but we are active within it as long as we don't -- as long as we get our return. So I think what your kind of -- that's one of our strengths as an industrial buyer is to have the in-depth understanding of the industries that we're working with it. And that will also give us the confidence to acquire both in good times and in worst times.
Thanks a lot for that color. I have 1 last question, and that's with regards to Ettikatto. And in the comparable quarter last year, you had some impact of the strike in Finland that finished in the end of April. And if not for that, what do you believe has been the organic growth in this quarter compared to last year? I mean, how negative would it have been? Is it low single digits or...
I don't have a firm view on that. But yes, it will definitely be the low single digit. We had some effects last quarter. But I would say they were not significant and it's like in all -- it's timing. And so I would say it's not a very big difference compared to the numbers that we show now actually officially. But what -- I think what Martin also pointed out is that we actually have within the quarter at Ettikatto, towards the end of the quarter, we've actually seen an uptick in demand, which gives us some comfort.
Okay. We've got 1 final question here before we end this presentation. As a shareholder, what should we expect from Volati in the coming years?
It's a good question. I think that's my Slide 2. So no, it's -- we have been able to grow on average 23% the last 10 years reported EBITDA. I think we're doing everything we can in order to maintain that strong development for our shareholders also going forward. We have the platforms in place. We have the financial stability and financial capacity to grow through acquisitions. So we have -- I would say we have all in place to maintain that kind of profile also going forward.
Okay. Thank you very much, Andreas and Martin for the presentation and answering all our questions. And also a big thanks to everyone who called in and all questions during this presentation. All of you have a great rest of the day and summer. And until next time, thank you and good bye.